UNIVERSITY OF ECONOMICS AND LAW FACULTY OF ACCOUNTING AND AUDITING GRADUATION THESIS AUDIT PROCEDURES FOR INVENTORIES BY PWC VIETNAM AT ABC COMPANY Lecturer: Ms. Hoang Thi Mai Khanh Student: Le Quoc Huy Student ID: K194050748 Class: K19405CA TP.HCM, 04/2022 ACKNOWLWDGEMENTS This thesis has been completed with the support and help of many agencies, organizations and individuals. With deep and sincere feelings, I would like to express gratitude to the teachers, friends, and colleagues who have facilitated and helped me during the study as well as as this thesis. First of all, I would like to express sincere thanks to the teachers of Accounting - Auditing Faculty, University of Economics and Law - VNU-HCM, who have used both their knowledge and their enthusiasm to become the light for me.
Especially, I would like to express my appreciate to Ms. Hoang Thi Mai Khanh, who dedicatedly guided me through every little detail of the internship report. Without her dedicated help, this thesis could not have been completed due to professional limitations as well as lack of practical experience. Once again, sincerely thank you Miss.
Secondly, I want to express my gratitude to the guidance and sharing of valuable experiences from the Staffs at PwC Vietnam. During the internship period, the Staffs enthusiastically helped me understand the reality of auditing activities, the environment as well as the company's policies and regulations. Last but not least, shout out to all of my beloved friends, who always support me through all the ups and downs. Your presence and help are both spiritual and material encouragement to me.
I truly appreciate this. This thesis was made in three weeks, after the internship period due to limited time, difficulties to approach the internal documents as well as the limitations in terms of knowledge, the article the report cannot avoid the shortcomings. I look forward to receiving comments so that the report can be further improved. Commented [MK1]: remove Commented [J72R1]: Done ạ OVERVIEW CHAPTER.
The necessity of the thesis:. Subject and the scope of the thesis. Structure of the thesis. Limit of the thesis.
8 CHAPTER 1: THEORETICAL BASIC OF INVENTORY .1 Key areas of fraud risk when auditing inventory: .2 Audit Assertions for Inventory: .3 Audit procedures for Inventory: .4 Audit of Inventory and relating to Warehousing cycle: .1: Functions in the Inventory and Warehousing Cycle .2: Acquire and Record raw materials, Labor, and Overhead .3: Audit of Inventory .5 Audit of Cost Accounting: .1 Cost accounting controls: .2 Test of Cost Accounting:.6 Physical Observation of Inventory: .1 Analytical procedures for the Inventory:.4: Analytical Procedures for the Inventory and Warehousing Cycle .2 Inventory Observation Requirements .3 Controls over physical count:.5 Physical Observation Tests:. 24 CHAPTER 2: INTRODUCTION TO PWC VIETNAM .1 Introduction to PwC Vietnam: .2 Organizational Structure of PwC Vietnam: .3 Audit methodology of PwC:.4 General introduction to Accounting Standard “Inventories” .5 Comparing International Accounting Standard IAS 2 and Vietnam Accounting Standard VAS 02.1 : The similarities and differences of IAS 02 and VAS 02. 33 CHAPTER 3: THE AUDIT PROCEDURE FOR INVENTORY OF ABC COMPANY BY PWC CO.1 Financial statements audit procedure at PwC Vietnam:. 39 Table 1:Financial statements audit procedure at PwC Vietnam .2 Audit procedures for inventory at PwC Vietnam: .1 Key areas of fraud risk when auditing inventory:.
42 Table 2: Key areas of fraud risk when auditing inventory: .2 Illustrating Audit procedures for inventory at PwC Vietnam:. 43 Table 3: Planning – scoping and strategy .43 Table 4: Intital Procedures Checklist.4 Gather evidence of ABC Company:.5 Understanding and evaluating the internal control system related to Inventory:. 66 Table 5: Control Environment .67 Table 6: Risk Assessment.69 Table 7: Information system and Communication .71 Table 8: Monitoring of Controls .72 Table 9: Establish Material .73 Table 10: Material threshold .73 Table 11: Lead schedule of Inventory of ABC Company by PwC .78 Result of Physical observation counting at ABC Warehouse .5 Evaluation of audit results (conclusions):. 101 CHAPTER 4: COMMENTARY AND RECOMENDATION .1 General commentary on PwC’s audit procedure .2 Commentary on PwC’s Inventory audit procedure: .3 General recommendation on PwC’s audit procedure:.4 Recommendation on PwC’s Inventory audit procedure:.
The necessity of the thesis: For the existence and development of enterprises, especially manufactured companies and the economy as a whole, inventory items and the process of auditing inventory are often important, greatly affecting the results and quality of the audit of financial statements. With the above risks, the audit of inventory items should be paid attention to in order to improve the quality of the audit as well as the audit opinion to be more appropriate. Realising the importance of presenting non-current asset, “Audit procedure for inventory by PwC at ABC Joint Stock Company” would be the topic for this thesis. Thesis objectives Describe and analyse inventory audit procedures performed by PWC at ABC Joint Stock Company Analyzing and assessing for the audit procedure for inventory at PwC Vietnam.
Thesis method Apply the knowledge learned in university. Collect related data through textbooks, current accounting/auditing standards and internet. Collect information from audit client audited in PwC’s data. Consult auditors in charge and instructors.
Subject and the scope of the thesis Subject: the process of auditing inventory performed by PWC Scope: Data and information obtained from the audit file of client ABC for the year ended 31/12/2022 by PwC. Structure of the thesis The report will be included 4 chapters: Overview chapter: The necessity of the thesis, thesis objectives, report method, subject and the scope of the report. Chapter 1: Theoretical basic of inventory. Chapter 2: Introduction to PwC Vietnam Commented [MK3]: đổi thành chapter 2 Commented [J74R3]: Done ạ Chapter 3: The audit procedure for inventory.
Commented [MK5]: Viêt đầy đủ tên chương Chapter 4: Commentary and recommendation. Limit of the thesis For confidentiality, the subject's name in the report has been changed and for illustrative purposes only. No job is without challenges, and that includes writing this report and the internship. Some limitations made creating this report a bit difficult.
They are: There was not enough time to cover all the patterns. For reasons of confidentiality, much information has not been disclosed. Inability to observe the application of the laws and procedures followed during the examination. CHAPTER 1: THEORETICAL BASIC OF INVENTORY 1.1 Key areas of fraud risk when auditing inventory: The major risks of Inventory balances in the financial statements being misstated are due to: Inherent risks Assertion Inventory that actually belongs to third parties being R&O – Rights, included in the financial statements and obligations Inventory that does not exist being included in the E – Existence financial statements Not all inventory that exists being included in the C – Completeness financial statements Inventory being included in the financial statements at V – Valuation full value when it is obsolete or damaged Inventory being included in the financial statements at the wrong value, whether due to miscalculation of cost V – Valuation or the fact that cost has been used although net realisable value is lower than cost Inventory which has actually been sold is included in the CO – Cut off financial statements 1.2 Audit Assertions for Inventory: Audit assertions for inventory Actual inventory balances exist as of the reporting date, in accordance Existence with the financial statements.
All inventory transactions that were carried out during the accounting Completeness period are included in the inventory reported on the balance sheet. Rights and The organization actually controls all of the inventory listed on the obligations financial accounts as of the reporting date. Valuation Inventory balances accurately depict a product’s economic worth. Presentation and The notes to the financial accounts adequately reveal inventory and disclosure classify it correctly.3 Audit procedures for Inventory: a.
Existence Existence or occurrence assertions are used in inventory audits to determine if the inventory listed on the balance sheet genuinely exists and whether inventory transactions actually occurred. Test existence in physical inventory observation count Observe the client’s annual inventory counting methods. Choose a few samples from the inventory summary record. To ensure that the inventory on hand matches the record, measure the actual inventory.
Testing additions of Inventory: Choosing a sample of additions of inventory during the year Vouching them to the supporting documents such as Goods Received Notes (GRNs), Goods Delivery notes (GDNs) or supplier notes. Completeness The completeness assertion in the audit of inventory verifies that all purchases and sales of inventory are documented, as well as the inclusion of all inventory at year-end in the balance sheet. The possibility that a company purchased merchandise without recording the transaction into the inventory account is one of the high risks associated with inventory. This may be brought on by either purposeful fraud or inadvertent error, both of which result in an underestimate of inventories.
Testing of completeness Pick up a sample of inventory received notes (or good received notes) and Follow up with a detailed inventory listing The general ledger and detail inventory listing were reconciled. Test of completeness in inventory count procedure Observe the year ended inventory counting procedures of the client company Select a sample of items that counted in the client’s store or warehouse Follow up the counted items with detailed inventory listing. Rights and obligations Completeness assertion checks if all the inventory listed on the balance sheet actually belongs to the business during the inventory audit. Testing rights and obligations Verify to determine whether there is any inventory stored for the third party, and if there exists, make sure it is adequately segregated from other goods during the inventory count and not included in the balance sheet.
To confirm that the inventory truly belongs to the company, check the purchase invoice or purchase agreement. Valuation The valuation assertion assesses the accuracy of the number of stocks in the client’s account and the appropriateness of the client’s approach for evaluating the costs various products for inventory value. The worth of the inventory is always measured at the lower of cost and net realizable value, which is a significant guideline that governs inventory valuation. As auditors, we have to guarantee that the client appropriately complies with the aforementioned guideline otherwise a misrepresentation may arise.
The overstatement statement is more likely to occur in this situation because the client occasionally bases the value on the cost of all the inventory, including outdated inventory, whose net realizable value is often lower than the cost. The appropriateness of the client’s overhead allocation is a further important consideration in the inventory assessment. This situation typically arises when assessing the final products and work-in-progress of the client’s manufacturing items. Testing of valuation Assess to determine if the client’s technique of inventory value is suitable.
Recalculate the client’s inventory valuation Ask the relevant staff, such as the manufacturing and warehousing staff, if there is any outdated inventory present. Ensure that the outdated inventory is clearly marked and kept apart from other stock. Ensure that the market value (if any) has been applied to the cost of the outdated inventory value. Summary Overall, the existence and value of the inventory are the main issues that require our attentive attention.
This is because an overstatement of inventory at the conclusion of the accounting period will result in an underestimate of the cost of goods sold, inflating net profit. This is a problematic situation because the corporation often bases the management incentive on net profit.4 Audit of Inventory and relating to Warehousing cycle: The audit of the inventory and warehousing cycle can be divided into five activities within the cycle: 1. Acquire and record raw materials, labor, and overhead 2. Internally transfer assets and costs 3.
Ship goods and record revenue and costs 4. Physically observe inventory 5.